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Government consults on lower limit for RCB issues

The UK government has launched a consultation on potential changes to the regulations on taxation of securitisation companies. Amongst other points, it is considering lowering the threshold which determines the minimum size for Retail Charity Bond issues.

Allia C&C, the Impact Investing Institute, Big Society Capital and Social Enterprise UK have today submitted a joint response arguing that this limit should be reduced to £5 million.

RCB is a bond issuing platform that raises loan finance for charities through bonds that are listed on London Stock Exchange. Where the costs of accessing the bond markets would otherwise make it unaffordable to raise much less than £50 million, Allia created the RCB platform to reduce the costs and make it possible to issue far smaller amounts. Since its launch in 2014 RCB has issued over £300 million, supporting charities like Golden Lane Housing, Greensleeves Care and The Alnwick Garden Trust.

In order to raise money from investors and lend it on the charity, RCB relies on a certain tax treatment for ‘securitisation companies’. Under the current regulations each issue by a securitisation company must be for a minimum of £10 million, which means that the bond markets are still inaccessible for charities wanting to borrow less than this. With the launch of a new consultation the Government is now seeking the industry’s views on lowering this limit.

Allia C&C is the financial services arm of the Allia group that arranges debt funding for charities, including through RCB issues. Adrian Bell, chief executive of Allia C&C, said:

“We greatly welcome this consultation, which comes after many years of lobbying to lower the threshold. We are campaigning for the limit to be brought down to £5 million, making it possible for many more charities to raise unsecured, covenant-light funding from investors who are hungry for more responsible investment opportunities.

“I encourage every charity that might ever want to borrow amounts of £5 million or more to make their voice heard by Government and tell them it is unfair to be denied access to these investors.”

Sarah Gordon, chief executive of the Impact Investing Institute, said:

“We know that there is increasing demand from investors to use their money in ways that deliver positive social and environmental impact. Lowering the threshold determining the minimum size for RCB issues to £5m will help meet that growing demand, as well as provide more affordable funding for charities whose work is even more crucial now, given the terrible impact of the coronavirus pandemic.”

Stephen Muers, CEO of Big Society Capital, said:

“Big Society Capital has been a supporter and champion of the charity bond market since its inception, when we created a Charity Bond Support Fund with Rathbones back in 2014 establishing a backstop facility with the ability to top up bonds that aren’t fully subscribed. The charity bond market has since thrived with listed charity bonds growing to more than £300 million (as of 2020), but we believe it has potential to unlock further capital. We welcome this consultation and would urge the threshold be lowered to £5 million to enable more charities to raise financing from capital markets at a time when an increasing number of investors are seeking more impactful investments.”

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